As was widely expected, the ECB’s governing council voted to cut the main refinancing rate by 0.25 of a percentage point to 0.50%. The rate, which determines the cost of over €850 billion in ECB loans outstanding, had stood at 0.75% since last July.

In the room for the ECB press conference which took place in Bratislava, Slovakia, was Brian Blackstone. Meanwhile, David Cottle and The Wall Street Journal markets team kept an eye on matters in London.

This blog has now closed.

7:28 am (EDT)

Welcome!

David Cottle

Hello everyone and welcome to our live blog of the European Central Bank’s May monetary policy decision and press conference.

It could be a big one with plenty of analysts expecting that the latest round of weak euro zone data, along with news of docile inflation, will lead the ECB to cut the key refinancing rate by a quarter point, to a new record low of 0.5%. It’s been at 0.75% since last July.

Some think it may also offer some more targeted measures to try and kick-start growth in the euro zone. If the ECB delivers, President Mario Draghi can expect plenty of questions on how the Bundesbank was talked into going along with the lower rates which Germany, at least, doesn’t obviously need.

Of course, if we do see a new low for the refi at 0.5% it will only be down to the sort of levels that other key central bank rates have been at for years, a comparison Mr. Draghi’s questioners are only too likely to draw when he meets the press.

If there’s no action we can probably expect some euro weakness and the most terrible accusation a central bank can face: that of being ‘behind the curve’ to be hurled with abandon.

Beppe Grillo and Silvio Berlusconi may have been the big winners in Italy’s election, given that they outperformed expectations and prevented a clear victory for the center-left coalition, which polls had indicated was on course to victory.

But Italians abroad had a different view.

Around one million ballots were cast outside the country, and they overwhelmingly indicated what most investors likely had wanted and counted on: a center-left alliance with departing Prime Minister Mario Monti.

Three failures and a success denote Italy’s inconclusive elections, according to Bill Emmott, former editor of The Economist, the weekly news publication.

In a blog posted on a website promoting his documentary on Italy’s perennial problems, “Girlfriend in a Coma”, Mr. Emmott says the first failure is the political elite’s lack of understanding of the severity of the crisis besetting the country at the political, economic and moral level.

The second failure is the center-left Democratic Party’s inability to show voters it could lead the country into a new era, he adds. Although it had been expected to enjoy an overwhelming victory, the party only won a majority in the lower house. “(It) failed to re-position itself as a party of renovation, of youth, of vision, of the future, and campaigned complacently as a party that did not really want to change anything, especially itself,” he says.

Contagion has returned to the euro-zone government bond markets, and not the good kind.

For several months, European Central Bank President Mario Draghi has spoken about “positive contagion” in the euro area, with a brighter tone in Spanish government bonds helping bonds from other countries, including Ireland and Italy.

Tuesday, the tendency for bonds of fiscally stressed euro-zone states to move in lockstep was less benign. In a jerky early selloff, as Italian government bonds crumpled under the weight of investor unease over the country’s election results, Spanish bonds also felt the heat.

In a national election meant to push Italy further down a path of economic reform, voters delivered political gridlock that could once again rattle Europe’s financial stability.

After the Dow Jones Industrial Average suffered its worst session in almost four months, stocks were hit across Europe on Tuesday, sending investors scurrying out of bonds of Europe’s troubled south and into northern safe havens.

This live blog is now closed, but you can review Tuesday’s developments here.

2:23 am (EST)

The Political Phase

David Cottle

Just about every piece of analysis on global stock markets’ 2013 vigor has come larded with the caveat that it can endure until the euro zone’s problems flare up again. Well, they have. A majority of Italian voters cast their lot with parties who have pledged to water down or even dial back the financial austerity Italy has promised to its euro-zone bedfellows.

As Chris Weston, chief market strategist at IG markets, put it this morning, “This is a story of anti-austerity and one where most hadn’t expected the anti-austerity/anti-European parties to do anywhere near as well as they have. The Italian voter has spoken out and this has thrown up political instability as perhaps the No. 1 issue facing Europe in 2013.”

Luminaries such as European Central Bank chief Mario Draghi have been keen to declare the “markets” phase of Europe’s debt crisis over. Whether or not that was a premature call, the political phase is clearly only just getting started.

ROME—With just days to go before Italians head to the polling booths, it’s time to review how the main candidates’s claims stack up.

As noted here before, Pagella Politica has a site where key statements made by a slew of politicians are gauged by a team of young professionals who volunteer to sort remarks into categories ranging from “true” through “almost” to “little Pinocchio” to “crazed fib.”

The idea of fact-checking is catching on in Italy, and Pagella Politica is playing a leading role, having drawn more than a million page views in January, according to Amerigo Lombardi, one of its proponents.

So here are the results for the six main candidates, ordered according in line with opinion polls.

Italy’s election campaign has become more and more combative just as it’s increasingly likely that no simple majority will be formed, requiring post-electoral coalition forging.

“I’ve seen a lot of elections, and this one is turning out to be just as full of noise as others, but I trust that all participants understand they will have to be serious when the voting is over,” President Giorgio Napolitano, the head of state, said at an awards ceremony in Rome on Tuesday.

His comments come after leading candidates made a raft of remarks aimed at making alliances harder to form.

“I don’t and won’t have anything in common with this coalition of the left,” departing Prime Minister Mario Monti, who heads a new centrist coalition, said in a television interview on Monday.

ROME–The difference in sovereign borrowing costs between Italy and Germany is no longer the best indicator of “solvency risk,” Mediobanca analyst Antonio Guglielmi said in a note published Monday.

A superior indicator now is the yield gap between Italian Treasury bills, or short-term debt notes, and longer-term Italian government bonds whose residual duration is the same as those bills, he said.

This measure signals a higher premium than before the European Central Bank’s euro-salvaging Outright Monetary Transactions and indicates that Italy’s “solvency risk is surely here to stay,” Mr. Guglielmi said.

A review of the yield gap between short-term BOTs, or Buoni Ordinari del Tesoro, as Italy’s T-bills are known, and equivalent off-the-run bonds with the same three months to maturity was just 0.02 percentage point in the precrisis years, and peaked at 0.71 percentage point at the height of the crisis. Today it is down to 0.18 percentage point, Mr. Guglielmi said.